On 26 February the Preparatory Committee announced the outcome of its last meeting which took place on the 24-25 February 2016, at which the Rules on Court fees and recoverable costs for the UPC were agreed and published (albeit subject to legal scrubbing) alongside an Explanatory Note. While the fee structure is clear, navigating the related provisions will be a journey which some litigants find less than certain.
The level of the fixed fees for infringement actions and counterclaims, declarations for non-infringement and an action for compensation for a licence of right remain unchanged from earlier proposals at €11,000. Similarly, the fixed fee for a revocation action is €20,000 and the fee for the determination of damages (where liability is not disputed) remains at €3,000, as originally proposed. As we have previously noted1, the choice of only a fixed fee for revocation counterclaims is well reasoned, given that it is a fee for defending oneself. However, the choice of a fixed fee, and the level thereof, for a stand-alone revocation action is more contentious. The fee may be considered on the high side if there is a policy objective to incentivise the challenge of weak or invalid patents. Alternatively, it will likely be considered too low by patent holders, who may feel exposed to early and more numerous revocation actions were entities to favour the UPC revocation over the EPO opposition.
Also of note, the previously proposed fixed fee of €16,000 for appeals under r220.1(a) and (b) has been revised, such that it is commensurate with the fee paid at first instance (i.e. €11,000 plus value-based fee for infringement actions and €20,000 for revocation actions). This reinforces that the currently proposed fee structure remains less favourable to patentees than to those that seek to revoke patents, with higher fees not only to bring their claims in the first instance, but also on appeal.
At first glance, it also appears that there is some degree of conflict in the Rules. Interlocutory appeals pursuant to rules 220.1(c) and 228 attract a fee of €3000, whereas applications to review case management orders pursuant to Rule 333.3 attract a fee of only €300. It is possible to envisage circumstances in which certain case management decisions could be (rightly or wrongly) subject to review or appeal under either rule, for example orders relating to evidence and the communication of information made during a case management hearing, meaning that appeals of the same type can vary ten-fold in the applicable fee depending on the stage of the proceedings. It is also interesting to recognise that the fee for review of case management decisions is low, potentially opening the door for many challenges while the UPC, and particularly its procedure, is in its infancy.
Other amendments include that the fee for applying for leave to appeal a costs decision has been fixed at €1500, half that previously proposed; and that the reference to fixed fees for “other counterclaims pursuant to Article 32(1)(a)” has been removed, given the lack of clarity as to what this was intended to cover.
The value based fees have, on the whole, been slightly increased from the previously proposed levels. The scale has also been extended to provide further value-based fees for those actions up to and including, and over, €50m. In short, this means that the costs of commencing the litigation for infringement in the UPC is likely to range on a sliding scale from €11,000 for claims of up to €500,000 to €336,000 (including the €11,000 fixed fee) for claims over €50m. Of note, value-based fees are still not payable for revocation actions.
Of course, this begs the question of quite how one values an infringement claim. The Guidelines suggest that value should be calculated in as simple a manner as possible. In particular, it notes the benefit of assessing value in a similar way that damages are assessed in many European jurisdictions: by reference to an appropriate licence fee. It also notes that the value should relate to the summed up values of the main remedies. In many cases, one can envisage that this will include an injunction. The guidelines propose that the value of an injunction is also to be considered by reference to a reasonable royalty rate on the defendant(s) anticipated future turnover, despite the reality that it may be significantly more if an assessment of lost profit or an account of profits were used, and that such an assessment would be more akin to the reality of the defendants product being absent from an otherwise monopoly market.
Of course, it remains in the patentee’s interest to downplay the value for the assessment of the value-based fee, as there appears to be limited detriment in doing so. Any subsequent damages assessment does not appear to be limited to the claim value stated during the early stages of the proceedings, such that the effect of stating a low claim value appears to be limited to payment of a lower fee for commencing proceedings, and a lower ceiling on recoverable costs (at a stage when it is unclear which party will ultimately be successful and therefore whether that low ceiling is actually of benefit or a detriment).
Of note, while an assessment of the value of the revocation action is not necessary for assessing fess, it is necessary for determining the recoverable costs ceiling. This is principally to be determined as “the value of the patent”, although quite how this might be calculated is unclear. For example, could it include the originators profit from products sold under its patent for the remaining life of the patent? If it is not possible to assess the value of the patent, it can be assessed as an appropriate license fee for the remaining lifetime of the patent, or by reference to the value of the infringement claim plus up to 50%. In order to determine the level of recoverable costs, the value of infringement and validity should be summed. Given the potentially high value of the validity of a patent, it appears likely that recoverable costs may be high in many cases.
The proposals confirm that small and micro-enterprises are entitled to a 40% reduction in the fees payable, in circumstances where they meet certain criteria. There are also some provisions which appear to seek to protect against exploitation of those provisions by non-practising entities who may otherwise fall within the definition of a small and micro-enterprises, although it is unclear whether they would be successful in doing so. In particular, the provisions allow the Court to order the payment of the regular fee where it is not manifestly disproportionate and unreasonable in respect of the financial capacity of the applicant. In addition, the Court may order that plus an additional 50% (akin, it seems, to a fixed penalty), where the affirmation given by the applicant is wholly or partially incorrect. Of course, in the case of a typical non-practising entity, it may be that the applicant itself does not have financial capacity, and that the status of its financial backers is irrelevant to the question of fees.
Reimbursement of partial fees are also available where cases are heard by one judge, withdrawn or settled, or in circumstances where the fee level threatens the economic existence of a party who is not a natural party. Any claim to the threat of the economic existence of a party is considered based on the consideration of reasonably available and plausible evidence presented by the party seeking reimbursement. This should provide some security for the likes of small, publicly funded and non-profit parties.
The proposals also seek to impose a ceiling on recoverable costs in a manner dependent on the value of proceedings. The recoverable costs scale ranges from €38,000 for proceedings valued at €250,000 to €2m for proceedings valued at or over €50m. The aim of such a ceiling is clearly to provide some certainty for parties, with the Decision of the Administrative Committee referring to the ceiling as “a safety net, i.e. an absolute cap on recoverable representation costs applicable in every case.”
However, it is not entirely clear quite how certain the system is. Indeed, one might describe the ceiling as a “false ceiling”. This is because there are also some provisions allowing the raising of the ceiling by up to 50% for cases valued up to €1m, 25% for cases valued from €1m-€50m and raising the recoverable costs up to €5m in cases valued at over €50m. This may be applied by the Court in circumstances where the case is particularly complex or multilingual. While it is true that in such circumstances the party’s financial capability will be taken into account, this also means that it may be quite unclear when proceedings are commenced what a financially stable party’s costs liability may be.
There are also provisions allowing for the ceilings to be lowered where the costs would threaten the economic existence of a party, in particular, where a party was a micro-enterprise, SME, non-profit, university, public research organisation or natural person. Again, while this seeks to protect such entities from costly litigation, it may also inadvertently act to shield NPEs from extensive costs liability, in cases where their business model is to litigate, but that their financial status renders them akin to an SME.
The proposal also confirms that only one fixed and one value-based fee should apply in multi-party, multi-patent actions. Similarly, the ceiling for recoverable costs is per action. This clarity is welcomed, but it remains unclear whether parties will seek to bring actions that would otherwise be sensibly heard together, separately, so as to benefit from separate costs recovery for each of the parties, in circumstances where the value-based costs recovery significantly outstrips the value-based fees paid.
In addition, given that Rules 302 and 303 allow the court to order separation of multi-party and multi-patent actions (including the power to decide upon a new court fee), litigants commencing actions against multiple parties must be aware that the “ceiling” which gave them certainty as to their potential costs liability on the commencement of proceedings, may ultimately apply in multiple separate proceedings, resulting in a much greater liability.
It also appears that the recoverable costs ceilings are only to apply to fees for representation. This leaves open the question of recoverability of court fees. Where a party brings a meritless action or application, these proposals provide no further guidance as to the extent to which the counterparty in the action or application can recover fees.
It is possible for one to hypothesise about an NPE bringing proceedings relating to multiple patents, which they (given their limited liability for fees relative to their opponents potential costs liability), or the court, may separate into multiple separate proceedings. The result of which is that an NPE may have limited liability for fees (subject to them being considered a micro or small enterprise) and limited liability for costs (subject to them being considered an SME) should they lose, while their opponent is exposed to many millions of Euros in their own unrecoverable fees (whether they win or lose) and those of the NPE should they lose. Despite this hypothetical, there does appear to be some degree of discretion for the judges to do what is fair and just, and, on balance, the proposals strike a balance between accessible justice for businesses with limited litigation budgets and fair recovery for all parties.